LVR Calculator

What Is Loan-To-Value Ratio (LVR)?

The Loan-to-Value Ratio (LVR) is a financial term that compares the amount of the loan to the value of the property being purchased, expressed as a percentage.

Put simply, the LVR of your loan is the percentage of the property value that you’re borrowing.

Lenders use LVR to assess risk, with lower LVRs generally indicating reduced risk for lenders.

How To Calculate LVR

Your LVR is calculated by dividing the loan amount (the amount you’re borrowing) by the property value and then multiplying the result by 100 to express it as a percentage.

Mathematically, LVR = (Loan Amount ÷ Property Value) × 100

This formula expresses the loan amount as a percentage of the property’s value.

For example, if you borrow $900,000 against a $1 million property, your LVR is 90%.

LVR = (900,000 ÷ 1,000,000) × 100

How Does LVR Affect Your Home Loan?

The Loan-to-Value Ratio (LVR) influences various aspects of your home loan, including the interest rates you’re offered, potential additional costs like Lenders Mortgage Insurance (LMI), and your chances of securing loan approval.

• Interest rates: Many lenders implement tiered pricing based on LVR brackets. For instance, an LVR below 60% may qualify for the lowest interest rates, while an LVR between 60% and 80% might incur slightly higher rates. Those with an LVR above 80% could face higher rates.
• Lenders Mortgage Insurance (LMI): If your LVR exceeds 80%, lenders typically require you to pay for Lenders Mortgage Insurance (LMI) as well. This insurance protects the lender in case you default on your loan, but it is an additional cost borne by the borrower.
• Loan Approval: LVR plays a crucial role in loan approval processes. Many lenders have maximum acceptable LVRs. A high LVR can reduce your borrowing power or even lead to loan rejection.

LVR Percentages And Their Implications

Each LVR percentage carries specific consequences regarding loan approval, interest rates, and additional costs such as Lenders Mortgage Insurance (LMI).

LVR Below 80%

• Lenders typically don’t require Lenders Mortgage Insurance (LMI) when the LVR is under 80%, as this is considered a safer loan for the lender.
• Loans with an LVR below 80% are considered lower risk and, therefore, lenders often offer more competitive interest rates.
• With a lower LVR, there is a greater chance of getting loan approval, as the lender has less exposure in case of default.

LVR Between 80% and 95%

• With an LVR above 80%, most lenders will require you to pay for Lenders Mortgage Insurance (LMI).
• The interest rate may be slightly higher than on loans with lower LVRs.
• LMI can add costs to the loan, increasing your loan repayment amount, especially if it’s capitalised.
• Waived-LMI options are available.

LVR Above 95%

• A guarantor loan is a good option if you need to borrow more than 95% of the property value, or even more than 100%.
• You might need a deposit of more than 5% to account for additional costs of buying property, such as stamp duty and other mortgage-related and legal fees.
• Lenders will likely have stringent eligibility requirements, including excellent credit scores, steady income, and a low debt-to-income ratio.

Make Informed Decisions With The 360° Home Loan Assessor

• Determine how much you can contribute as a deposit
• Get clarity on the total costs of buying a home
• Explore interest-rate options based on your situation

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